When was the last time you sat with your colleagues as a team and brainstormed innovative ideas for your business? Was it easy to decide which of them to implement? How do you ensure that your innovation efforts are consistent in the long run?
Just like you organize your employee structure or tasks in a project, organize your innovation too. Depending on the needs of your business, choose from these proven methods that become the building blocks of your innovation framework.
This article will discuss:
- What an innovation framework is
- The four basic types of innovation organizations
- Doblin’s Ten Types of Innovation
- Ally vs. Alliance
- The Three Horizons
- Opportunities and obstacles in external and internal innovation.
Read on to find everything you need to know in order to make an informed choice about your next innovation strategy!
Table of Contents
Innovation frameworks provide a predefined structure that can help any business assess and prioritize their options in different scenarios. These are methods that business leaders, consultants, and researchers have developed based on their experiences in the real world.
In a nutshell, an innovation framework is a structure that companies use to define how they will evaluate a business decision that could bring a significant change.
Four Types of Innovation
Innovation can be categorized in four ways with respect to the technology used and the market it operates in.
The most common kind of innovation, sustaining innovation, tries to improve the current value network of a company to satisfy the needs of consumers. As a result, they have lower risk and focus on increasing profits.
Disruptive Innovation refers to creating something that compels customers to switch from traditional methods to new methods. This is often done by startups because an existing market player is bound by the limitations of the current business. For instance, Netflix brought a new angle to renting movies easily that made Blockbuster go out of business.
Basic or Incremental innovation involves gradual and continuous improvement in your existing services or products, such as how television manufacturers frequently release newer models. As a result, there is less impact on the business and minimal risk.
A breakthrough or radical innovation is a cumulation of several incremental innovations that push a company beyond its expected level and revolutionizes its industy.
Doblin’s Ten Types of Innovation
The Ten Types framework developed by Doblin helps to design new innovations and assess the current rate of changes in your products and services. Step one: find opportunities for innovation, step two: make them happen.
These ten types of frameworks are broadly classified into three categories: Configuration, Offering, and Experience.
First up are Category frameworks that deal with the organization of the company with respect to the generation of profits.
1) Profit Model
This framework has you think about where your revenue comes from and how you are reaching your target audience. What could you do to generate more funds and interest?
Network and alliances are how you build strategic partnerships and manage relationships with your suppliers. Notice the parts of your plan that help or hurt your overall workflow. Can you expand on its strengths or outsource weaker areas to other contractors?
The structure or enabling process refers to the tasks and processes that support your organization, like Payroll or IT. Your company could benefit from using external providers for specialized activities, like marketing, technology, or design.
Of course, the activities in your core process can differentiate you from other players in the market. Evaluate the ways your company’s processes put you on top.
The next two types of framework fall under the Offering frameworks category, which focuses on the core product elements and their integration.
5) Product performance
Check if the product performance of your company is at its full potential. Is there a way to make your product more accessible or more effective? How can you deliver something that provides more value and benefits than your competitor’s products?
6) Product system
Your product system is your offering as a whole. This is about how you can make it more attractive. Is there potential for your offerings to be tailored or customized?
The last category, Experience, pertains to the interaction of the company with its customers.
Service focuses on the way you treat your customers. Improving the process of purchasing or making your website clear and easier to navigate can go a long way in adding value to your service.
Your channel is the medium through which customers get to know about you. Ensure that you are making good use of the latest trends in communication channels, like social media, which might help you effectively reach your current customers and find new ones.
Try to see your brand and the core values of your organization from a third-person perspective. Doing this could lead you to discover more effective ways to communicate the benefits and value of your company to your customers.
10) Customer Engagement
Consider what your customers think about the products or services you offer. Identify new styles to engage and interact with your users, and brainstorm how you can encourage the integration of your brand into their day-to-day life.
The ten types of innovation can be used in different combinations, called elements in a myriad of ways. Use these elements to revisit existing strategies and develop viable innovations across all levels of an organization.
Ally vs. Acquire
Acquisitions and alliances bridge the gap between a firm’s present resource arsenal and the future by providing access to external resources. Both of these are equally useful innovation strategies to expand your growth.
In an acquisition, a financially stronger entity purchases a less strong or smaller entity by buying more than half its shares. So when you acquire a company, use the assets of that company to build on your strengths or weaknesses.
Let’s look at an example; Microsoft purchased a digital marketing company called aQuantive, one of the largest acquisitions in its history. But the acquisition failed. The staff of aQuantive blamed a ‘culture clash’ for their degradation inside Microsoft. Gradually, a high-quality workforce started migrating to other companies.
If retaining the current employees of the company you want to acquire is a major concern, you might want to ally with them instead. Making the alliance mutually beneficial will prevent employees from leaving.
In an alliance, two businesses arrive at an agreement to each commit resources to achieve a standard set of objectives. You can share resources, information, get increased access to innovations and new technology, reduce competition by joining forces with like-minded businesses. It increases the customer base and grows revenue by giving you a chance to enter new markets and improve the quality of your products and services.
It is imperative, however, to select business partners very carefully. You must both be able to commit equally to the project and negotiate a formal contractual arrangement for everything to go smoothly. The alliance must be a strategic win-win for both parties.
A well-thought-out alliance can do wonders for businesses. However, if the demand is high, there may not be time for a strategic partnership, and you would have to buy the company before your competitor does.
In order to have all the information you need to make a good choice between acquisition and alliance, you should figure out what you want to gain from the other company, what resources of yours are at stake, and what the current market position is like.
Three Horizons Framework
McKinsey has developed an effective tool to look at future strategies, called the Three Horizons of Innovation, to help structure your thinking about the future to generate exciting innovation.
In the first horizon strategy, the focus is on the current business, i.e. existing products and services. It looks for ways to improve by adding features to an existing model or creating an upgraded version of what you currently provide.
You could also find ways to do things faster and reduce your costs. For instance, take Uber. Initially, it was all but an app that connects drivers and riders. Now, we have Uber C, Uber Comfort, Uber Black. The current business is a far upgraded version of what it first started as.
The second horizon focuses on developing new business and building on top of what you’re already doing. You might upgrade technology, or move into new markets like Uber extending into the restaurant delivery services with Uber Eats,
On Uber Freight, you can book a truck to transport your luggage. Freight and Eats are both built on the existing technology that Uber already created.
Horizon three, however, involves building entirely new businesses. To do this, you may have to use technologies or capabilities that you do not have today. In fact, these technologies may not even exist. Let’s go back to our Uber example.
Uber Air, a new concept, offers electric flying taxis. Taxis would vertically take off from one building and land on another. The technology, the city airports, and regulations to make this possible are still being developed. With new technologies and new business concepts, there is, of course, a higher risk factor.
Most companies spend 99% defending what they have and managing their daily businesses, i.e., in horizon one. This leaves very little time to prepare for the future. Google CEO, Eric Schmidt, suggests a 70, 20, 10 guideline.
- Spend 70% of your resources on Horizon 1
- 20% on Horizon 2
- 10% on Horizon 3
Should my innovation be internal or external?
Internal innovation are any innovation changes within your organization. For example, it could be a structural change inside a team, a chance to increase efficiency in the production process or a financial change in your budget. Though the change is made within the organization, the impact may be visible both inside and outside.
External innovation involves improving a product or service in a way that directly impacts your customers. The introduction of new service systems or a new product line to meet your customer’s needs comes under this innovation category. There is a need for some expenditure in order to do research and obtain copyrights. You almost always hire a consulting firm to help you with external innovation.
Since internal innovation doesn’t require any external legwork, it is usually easier and much cheaper. The long-term return of an investment will be more visible with external innovation. On the other hand, a solely one-directional innovation strategy may harm your business more than help it. Therefore, it is necessary to find a balance, considering all the opportunities for change and the resources needed to make it.
The most innovative companies utilize all of these frameworks, but instead, look to find the right mix for them. Depending on where you’re business is currently a dedicated approach to which will work for you is best. Need some help deciding? Runway Innovation Hub offers consultation services to set you on the right path.
The key is to ensure that the frameworks you do select work together effectively, and your organization is moving towards a common innovation strategy.
Bonus: the innovation statement. A simple, 7-step framework for building a powerful innovation strategy
Defining your innovation strategy is critical to achieving your goals.
Our team at Runway has pulled together a detailed framework to help you start off on the right foot. Inside, you’ll find 7 steps to start building an innovation roadmap for your organization, along with concrete examples to guide you along the way.
How to use the framework:
- Breakdown and describe your innovation strategy (and have it fit on one single page)
- Use it as your innovation “North Star” as you engage with key stakeholders at different levels across your organization
- Build clarity and achieve alignment
About Runway Innovation Hub
Runway is a Silicon Valley-based innovation company accelerating the success of global innovators and entrepreneurs. We help corporations through results-focused innovation consulting, and power the growth of startups through acceleration programs, mentorship and coworking services.
Since 2013, we have helped companies like IBM, Epson and Emirates identify their biggest growth opportunities, and built customized, hands-on innovation programs to generate real business results. Learn more about how we can help you do the same here.